Response to late MTD payment sanctions

The Chartered Institute of Taxation (CIOT) is calling on HMRC to allow taxpayers a limited number of defaults before incurring a late payment penalty under Making Tax Digital (MTD).

Most businesses, self-employed people and landlords will be required to use digital accounting software to keep and file tax records on a quarterly basis from next year.

The new system is set to roll out from April 2018 for those with an annual turnover exceeding the VAT threshold (£85,000).

Businesses with annual turnover below this threshold are exempt until April 2019, while those with a turnover of £10,000 or below are exempt from the changes.

In a consultation, HMRC set out 3 possible models to penalise late payments and submissions. It intends to implement 1 of the following models:

Model A – points-based system where the individual would incur a penalty when a certain points threshold is reached

Model B – automated review system looking over someone’s compliance with their submission obligations after a set period of time

Model C – suspension of penalties where someone can avoid having to pay a penalty by provide a late submission.

In response, the CIOT said Model C is a “proportionate response” to late filing and is more likely to penalise non-compliance.

Adrian Rudd, spokesperson at CIOT, said:

“The suspension model most closely complies with HMRC’s penalty principles, which include that penalty regimes should be designed from the taxpayers’ perspective, primarily to encourage compliance and prevent non-compliance, and that penalties are not to be applied or seen to apply with the aim of raising money.”